What is SURE and why is the Commission proposing it?
The new instrument for temporary Support to mitigate Unemployment Risks in an Emergency (SURE) is designed to help protect jobs and workers affected by the coronavirus pandemic. It will provide financial assistance, in the form of loans granted on favourable terms from the EU to Member States, of up to €100 billion in total. These loans will assist Member States to address sudden increases in public expenditure to preserve employment. Specifically, these loans will help Member States to cover the costs directly related to the creation or extension of national short-time work schemes, and other similar measures they have put in place for the self-employed as a response to the current coronavirus pandemic.
What are short-time work schemes?
Short-time work schemes are programmes that under certain circumstances allow firms experiencing economic difficulties to temporarily reduce the hours worked by their employees, which are provided with public income support for the hours not worked. Similar schemes apply for income replacement for the self-employed.
SURE would provide additional EU support to finance Member States’ short-time work schemes, and other similar measures, helping to protect jobs.
All Member States already have some form of national short-time work schemes in place.
Why is the Commission focusing on supporting short-time work schemes?
The SURE instrument is just one element of the Commission’s comprehensive strategy to protect citizens and mitigate the pandemic’s severely negative socio-economic consequences.
Many businesses experiencing difficulties are being forced to temporarily suspend or substantially reduce their activities and the working hours of their employees. By avoiding wasteful redundancies, short-time work schemes can prevent a temporary shock from having more severe and long-lasting negative consequences on the economy and the labour market in Member States. This helps to sustain families’ incomes and preserve the productive capacity and human capital of enterprises and the economy as a whole.
How much funding will be available for the EU as a whole and for individual Member States?
Up to €100 billion in total financial assistance will be available to all Member States.
There are no pre-allocated envelopes for Member States.
How will the Commission secure and provide funding for the SURE instrument?
Financial assistance under the SURE instrument will take the form of a loan from the EU to the Member States that request support.
To finance the loans to Member States, the Commission will borrow on financial markets. The Commission would then provide the loans to Member States on favourable conditions. Member States would, therefore, benefit from the EU’s strong credit rating and low borrowing costs.
The loans will be underpinned by a system of voluntary guarantees from Member States committed to the EU. The instrument will start to function once all Member States have committed to those guarantees.
How will the conditions of each loan be decided?
These loans should be used by Member States to finance short-time work schemes for employees or similar measures for the self-employed.
Following a request by a Member State for financial assistance, the Commission would consult the Member State concerned to verify the extent of the increase in public expenditure that is directly related to the creation or extension of short-time work schemes and similar measures for self-employed. This consultation will help the Commission to properly evaluate the terms of the loan, including the amount, the maximum average maturity, pricing, and the technical modalities for implementation.
On the basis of the consultation, the Commission would present a proposal for a decision to the Council to provide financial assistance.
Once approved, the financial assistance will take the form of a loan from the European Union to the Member State requesting support.
How will the guarantee system work?
Loans provided to Member State under the SURE instrument would be underpinned by a system of voluntary guarantees from Member States. This will allow the Commission to expand the volume of loans that can be provided to Member States.
This guarantee system is necessary to achieve the necessary capacity while at the same time ensuring a prudent financing of the SURE instrument.
To this end, a minimum amount of committed guarantees (i.e. 25% of the maximum amount of loans of €100 billion) is needed.
How does this instrument relate to the previously announced European Unemployment Reinsurance Scheme?
In the Communication setting out its coordinated economic response to the coronavirus pandemic, the Commission committed to accelerating the preparation of its legislative proposal for a European Unemployment Reinsurance Scheme.
The SURE instrument is the emergency operationalisation of the European Unemployment Reinsurance Scheme and is designed specifically to respond immediately to the challenges presented by coronavirus pandemic.
It in no way precludes the establishment of a future permanent unemployment reinsurance scheme.
What are the next steps?
The Commission’s proposal for a SURE instrument will need to be swiftly approved by the Council.
The new instrument will be of a temporary nature. Its duration and scope are limited to tackling the consequences of the coronavirus pandemic.
African Development Bank launches record breaking $3 billion “Fight COVID-19” Social Bond
The African Development Bank (AAA) has raised an exceptional $3 billion in a three-year bond to help alleviate the economic and social impact the Covid-19 pandemic will have on livelihoods and Africa’s economies.
The Fight Covid-19 Social bond, with a three-year maturity, garnered interest from central banks and official institutions, bank treasuries, and asset managers including Socially Responsible Investors, with bids exceeding $4.6 billion. This is the largest dollar denominated Social Bond ever launched in international capital markets to date, and the largest US Dollar benchmark ever issued by the Bank. It will pay an interest rate of 0.75%.
The African Development Bank Group is moving to provide flexible responses aimed at lessening the severe economic and social impact of this pandemic on its regional member countries and Africa’s private sector.
“These are critical times for Africa as it addresses the challenges resulting from the Coronavirus. The African Development Bank is taking bold measures to support African countries. This $3 billion Covid-19 bond issuance is the first part of our comprehensive response that will soon be announced. This is indeed the largest dollar social bond transaction to date in capital markets. We are here for Africa, and we will provide significant rapid support for countries,” said Dr. Akinwumi Adesina, President of the African Development Bank Group.
The order book for this record-breaking bond highlights the scale of investor support, which the African Development Bank enjoys, said the arrangers.
“As the Covid-19 outbreak is dangerously threatening Africa, the African Development Bank lives up to its huge responsibilities and deploys funds to assist and prepare the African population, through the financing of access to health and to all other essential goods, services and infrastructure,” said Tanguy Claquin, Head of Sustainable Banking, Crédit Agricole CIB.
Coronavirus cases were slow to arrive in Africa, but the virus is spreading quickly and has infected nearly 3,000 people across 45 countries, placing strain on already fragile health systems.
It is estimated that the continent will require many billions of dollars to cushion the impact of the disease as many countries scrambled contingency measures, including commercial lockdowns in desperate efforts to contain it. Globally, factories have been closed and workers sent home, disrupting supply chains, trade, travel, and driving many economies toward recession.
Commenting on the landmark transaction, George Sager, Executive Director, SSA Syndicate, Goldman Sachs said: “In a time of unprecedented market volatility, the African Development Bank has been able to brave the capital markets in order to secure invaluable funding to help the efforts of the African continent’s fight against Covid-19. Not only that, but in the process, delivering their largest ever USD benchmark. A truly remarkable outcome both in terms of its purpose but also in terms of a USD financing”.
The Bank established its Social Bond framework in 2017 and raised the equivalent of $2 billion through issuances denominated in Euro and Norwegian krone. In 2018 the Bank was designated by financial markets, ‘Second most impressive social or sustainability bond issuer” at the Global Capital SRI Awards.
“We are thankful for the exceptional level of interest the Fight Covid-19 Social Bond has raised across the world, as the African Development Bank moves towards lessening the social and economic impact of the pandemic on a continent already severely constrained. Our Social bond program enables us to highlight our strong development mandate to the investor community, allowing them to play a part in improving the lives of the people of Africa. This was an exceptional outcome for an exceptional cause,” said Hassatou Diop N’Sele, Treasurer, African Development Bank.
Fight Covid-19 was allocated to central banks and official institutions (53%), bank treasuries (27%) and asset managers (20%). Final bond distribution statistics were as follows: Europe (37%), Americas (36%), Asia (17%) Africa (8%,) and Middle-East (1%).